Treasury Dept. Extends ‘Make Available’ Provisions of TRIA

The U.S. Treasury Department has announced its decision to extend the “make available” provisions of the Terrorism Risk Insurance Act (TRIA) through 2005, the third year of the federal Terrorism Risk Insurance Program.

The “make available” provisions of TRIA require that, from the date of enactment (Nov. 26, 2002) through the last day of the second year of the Program (Dec. 31, 2004), each insurer must make available, in all of its commercial property and casualty insurance policies, coverage for losses due to covered acts of terrorism that does not differ materially from the terms, amounts and other coverage limitations applicable to losses arising from events other than acts of terrorism.

TRIA requires that the Secretary of the Treasury determine whether the “make available” provision should be extended through the third and final year of the Program by Sept. 1, 2004. Additionally, TRIA mandates that the Treasury Department complete a study of the effectiveness and success of the overall Act by June of 2005. The comprehensive study is independent from the “make available” determination that was announced today.

“The terrorism risk insurance program has been an important confidence builder as this country recovered from the attacks of Sept. 11 and the recession. By extending the make available provision, we ensure that our overall evaluation of the program’s success is based on information and assumptions that are consistent and that there’s no changing of the rules in the middle of the game,” said Secretary John W. Snow.

In making this determination, the Treasury Department was interested in the perspective of both users and providers of terrorism risk insurance. To solicit input, the Department published a request for comment in the Federal Register on May 5, 2004, on the statutory factors (e.g., effectiveness of TRIA, capacity, availability, and affordability) with regard to the “make available” determination. The comment period closed on June 4, 2004, and almost 200 comments were received.

Based on the comments received and other information, the Treasury Department has found that there is a widespread belief that the “make available” provisions have contributed to the effectiveness of TRIA by providing customers with offers of terrorism risk insurance that would otherwise have been unavailable. The Department also found that it is widely believed that the “make available” requirement has contributed to the affordability and availability of terrorism risk insurance under the Program, and may have increased the attention devoted by insurers to questions of capacity to offer coverage. While little evidence was provided in direct support of these views, there also was little or no evidence presented that the “make available” provisions had harmed affordability, availability, or capacity. Therefore, the Department determined to extend this requirement into the third year.

Although the Treasury Department had until Sept. 1, 2004 to determine whether or not to extend the “make available” provisions of TRIA, they announced in a statement that the determination was made well in advance of the deadline in order to avoid any potential disruption in the terrorism risk insurance market.

The Treasury Department said it is currently in the information gathering stage of the congressionally mandated study of the Act’s overall effectiveness. To assist in this evaluation, it will conduct a comprehensive multi-wave survey with a nationally representative sample of policyholders, insurers, and reinsurers, which will allow us to obtain a broad view of the market conditions and dynamics. When the information gathering stage is completed, the Department said it will then study and analyze the information in preparation of the final report to Congress.

The Treasury department has stated that because its analysis of the program’s effectiveness and success is ongoing, it is premature to draw conclusions about the need to extend TRIA, either temporarily or permanently. Similarly, the department said recommendations at this time regarding the reauthorization of TRIA prior to the conclusion of our own study would be premature.